Goldman Sachs (NYSE:GS)' foray into consumer lending, marked by its joint ventures with Apple (NASDAQ:AAPL), has led to significant losses and dissatisfaction among its executives. The bank's unsuccessful partnership with Apple on the Apple Card project and a joint savings account has resulted in a $3 billion loss from consumer lending efforts, including a $1 billion loss attributed to the Apple Card project. This was revealed during a town hall meeting on Monday.
In addition to the losses incurred from the Apple partnership, Goldman Sachs also suffered a $1.2 billion loss in 2022 due to high acquisition costs per new user. The bank is now making efforts to divest from this sector, which includes selling off most of its personal loans and its primary consumer lending business, GreenSky, at a loss.
Despite negotiations with credit card company American Express (NYSE:AXP), Goldman Sachs has been unable to offload the troubled Apple Card partnership. Concerns about loss rates and MasterCard's role as the network partner have stalled decisions.
The billing cycle of the Apple Card, which generates all bills on the first day of each month, has been identified as an issue that increases customer service workload. Efforts to change this have been unsuccessful and have been attributed to Apple.
The recently launched joint savings account with Apple attracted high deposit balances within a few months. This development has caused concern among Goldman executives, as separating from Apple might necessitate large last-minute funding.
Adding to Goldman's woes is an investigation by the Consumer Financial Protection Bureau into the bank's failure to promptly address errors and refund cardholders. The bank blames Apple for this issue.
An exit strategy suggested by some within Goldman Sachs involves Apple lending its own money for new credit card issuance while the bank manages existing loans. However, this proposal lacks traction within both corporations.
During a July earnings call, Goldman Sachs CEO acknowledged the need to improve credit-card partnerships. Liz Martin, head of Enterprise Partnerships at Goldman Sachs, expressed satisfaction with the Savings account and focus on providing valuable products to Apple Card customers.
According to InvestingPro Tips, Goldman Sachs has been a prominent player in the Capital Markets industry and has maintained dividend payments for 25 consecutive years. The bank's management has also been aggressively buying back shares.
InvestingPro data shows that Goldman Sachs has a market cap of 107.33B USD and a P/E ratio of 13.25. Despite the challenges with the Apple Card project, the bank's revenue stands at 43.76B USD, and its gross profit margin is at a robust 83.02%. The bank also has a healthy dividend yield of 3.56%.
Apple, according to InvestingPro Tips, is a prominent player in the Technology Hardware, Storage & Peripherals industry. The company has been consistently profitable over the last twelve months and has raised its dividend for 11 consecutive years. The management of Apple has been aggressively buying back shares, which is a strong indicator of the company's confidence in its future performance.
InvestingPro data reveals that Apple has a massive market cap of 2780.0B USD and a P/E ratio of 29.72. The company's revenue stands at 383.93B USD, and its gross profit margin is at 43.45%. Apple has a dividend yield of 0.54% and has seen a 1 month price total return of 2.19%.
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